What does your DD like to do? I like experiential gifts (going to some place special like a play, a membership to a favorite place like a museum, etc.), homemade or personalized things (a story about the last year, a book of pictures, etc.), or things you can do things with (an easel or art supplies, a building table/blocks, etc.).

In terms of party favors, I think books are great and you can get softcover books for under $5 (and if you buy them locally you might get a discount for buying a certain number). Does your DD have a favorite book? Maybe that could be the favor?

Another idea: T-shirts...if you want they could be decorated at the party as an activity (tie-dye, fabric paints, fabric markers) and the local craft store near here has solid color ones for $2 or $3 a shirt.

My daughter just turned five, and when people asked me what they should get her, I said books and art supplies. She loves reading and anything artsy, and they're both things that don't take up a lot of room or are consumable. She got SO many art supplies (watercolors, make-your-own fingerpuppets, beading stuff, colored pencils, sticker books, paper, coloring books, etc.) and lots of books. We're set for another year!

For goodie bags, I bought cheap $2 watercolor sets and a few really cheap plastic rings or hair things and decorative pencils. Her party theme was rainbows so I bought everything in bright rainbow colors.

Ds turned 5 last month. We got him a two wheeler/pedal bike. We bought it on craigslist (we figured out which one we really wanted and then kept an eye on craigslist until we found it)
He also got several playmobils (his birthday landed during the Olympics, which he was really enjoying so we found Olympic playmobils)

For party favors I made comet balls (circular bean bags with tails) and got cheap squeeze rockets (he had a space themed party).

His BFF turned 5 earlier in the spring and they did Tshirts (that her mom silk screened pictures on before the party) and then kids decorated them with markers at the party.

Have you seen dover coloring books? Amazon generally has them buy four get one free. Lots of fun themes. New Markers. New playdough (sounds youngish but they allows are gone). I prefer not to do bags and offer one, more substantial thing and leave them unwrapped. Kids choose as they leave the door.